Tuesday, December 27, 2011

War On Shallowness

I'm pleased to hear that Paul Krugman does not like shallowness, particularly in the blogosphere. My guess is that most people would have a hard time putting his post into context, but I think he wrote it as a reply to my last post. Follow the "pulling rank" link in his last paragraph. Too bad that Krugman went shallow on this one. It would be much more interesting if he actually addressed the issues.

As an update on John Quiggin and Zombie Economics, (which initially set Krugman off on his "pulling rank" nonsense), if you have not read my longer critique of Quiggin's book, it is published in the Australian National University E Press. The paper is not just about Quiggin's book. It also serves as a response to the people who think that all of modern macroeconomics needs to go out the window because the financial crisis happened. Apparently Quiggin seems bothered by my critique, though he does not address the substance. It seems he would be happier if it had been written by an Australian, and not just another colonial.

my point is that it seems to me you have an excessive focus on what krugman writes (admittedly, i dont see all your posts); the only other economist who comes close is mark thoma, & he openly admits that he doesnt think his own writing is that good (ie, "hiding behind links)

Well, I don't spend much time reading other bloggers. I'll skim over things to see what topics people have picked up on, to see if there is anything interesting. Blog material is pretty weak in general. That's not the fault of the people writing it - it's the nature of the medium. Krugman has become a project that I like to come back to. I usually skim his site daily. What I'm looking for is the misrepresentation of economists or economic ideas. I'm willing to let most of what he writes go, but I don't think we should tolerate his badmouthing of the profession. A lot of people read him, and I think he is doing damage. And it's all completely unnecessary, which is the tragic part. For example, he can easily make his points without calling Robert Lucas an idiot or an evil person. He's neither. Bottom line: I'm trying to do a service for the economics profession. I'm at a stage in my career where I'm not too worried about offending some people if I have to. Honesty is a good thing, don't you think? But I don't think Krugman writes honestly.

Keep up the good work. I for one enjoy reading your comments on Krugman’s posts. So much so, that I will check your site first to see if you have a comment on his posts BEFORE I check his posts. I think you offer fair critiques to his points and, in most cases, debunk a lot of what he is saying.

Thanks folks. The "pulling rank" business is fairly straightforward. Krugman was in a tough spot. He didn't want to argue the economic substance, because that would make some people think that my ideas deserved attention. He couldn't argue politics, because I'm not a Republican. I sometimes do stupid things, but I don't think Krugman views me as a dummy, so he could not go that route. What else could he do but try to put me in the set of bad guys? Noah wrote a funny piece that he could piggyback on, and he went for it. He's very good at this, and he doesn't like people criticizing soldiers in the Krugman army, one of whom is John Quiggin.

Let's look briefly at the theme developed by these three statemens by Williamson:

1) [this blog is] a response to the people who think that all of modern macroeconomics needs to go out the window because the financial crisis happened.

2) but I don't think we should tolerate his badmouthing of the profession

3) he can easily make his points without calling Robert Lucas an idiot or an evil person

Now, I happen to be one of "those" people; specifically, I believe that modern economics needs to be thrown out the window for two reasons. First, it is not science, is not remotely close to science. If it were a science, you could run experiments to test theories. We can not do that. All that economics is now or will be in the foreseeable future is argument about observations. Second, if economics were a science it would have theory of how depressions and recessions happen and could predict such, which it cannot do.

When you have, instead arguments based on observation, they my field---the practice of law applies---and you use our tools, such as the oath, disqualifying for bias and favor, to sort out the truth.

In that regard, I am far more disinterested that people in the business who are combating for prizes and jobs. All I am concerned about is the future of my family and we are far from the 1%.

Regarding observation, there are four facts wholly disregarded by the blog, which make it and most all modern macroeconomics irrelevant.

First, none of the models consider the decline in investment as a per cent of GDP (or the subset of the the decline of federal R & D as a percent of GDP). I am not going to put up the charts but both have been in decline since we shifted to greedonomics (Laffler and Reagan)

Second, Keen deserves the Noble now for his work on the role of private debt, which shot through the roof in the 20s and before the Great Recession. Private debt drives everyday life, but is never discussed in macroeconomics, which is madness.

Third, my economics degree was in urban and regional economics, including location theory. Macroeconomics wholly disregards this knowledge. Macro models will never work over time because they do not consider that people will move (and most importantly) leave the country to move to more active economic cities and regions (China and India).

Fourth Dugger has powerful ideas on Fiscal Adjustment Cost Discounting that are not part of macroeconomics.

(http://www.hanoverinvest.com/commentaries.html)

My view is that he has shaped his ideas to suit his clients, but the idea explains why the GOP to cut taxes to kill the fed. gov't has destroyed the country.

A fifth, and more important criticism than all the others if the Vision Thing. I strongly believe in the fundamentals of wisdom through long periods of human experience. We know, most to the point, that where there is no vision the people perish, but there is no "vision" factor in macroeconomics. Thus, for example, macroeconomics doesn't know of the importance of our winning WWII or our having lost the War with Bin Laden on 9/11/01 (and if you think we didn't loose the war, that day, then you have no knowledge or sense of conflict, war or History.

"Third, my economics degree was in urban and regional economics, including location theory. Macroeconomics wholly disregards this knowledge. Macro models will never work over time because they do not consider that people will move (and most importantly) leave the country to move to more active economic cities and regions (China and India)."

You should read this guy's work:

http://works.bepress.com/esteban_rossi_hansberg/

Or read this paper, coauthored with Bob Lucas (remember he's the guy Krugman hates so much):

The pulling rank stuff was particularly hilarious because your RePEc citation ranking was higher than Quiggin's. And your ranking was a product of your macro work, Quiggin has never done any work in macro. You definitely weren't pulling rank, but you sure as hell could have.

Well, there's more to life than a repec ranking. For example, Neil Wallace gets a lot of respect among the group of people I see a lot. But he ranks 1126 on repec. If Quiggin were a homeless man who had written an insightful and constructive critique of contemporary economics, that would be great. The key problem is that his book is neither insightful nor constructive. If you read the acknowledgments and the back cover comments in the book, you will see that Krugman and friends played an important role in promoting that schlock.

First thank you for the link to hansberg, whose site I will take time to review.

Lucas--No--the question where, within a city or region, that people choose to locate is not so much of interest to me at the moment.

What is important, indeed vital, is why people choose NY or Chicago, or China or India

As regards reading more macro, probably no. I read all macro writing that as passes my current filters: (1) the author forecast the Lesser Depression or is a follower of same (Keen and Krugman); (2) the author has admitted his or her mistakes in not forecasting the Lesser Depression (no one).

As regards the rest of the pack, I apply the filters or Munger (and Buffet) stated in the Psychology of Human Misjudgment, which is the paper you should read. Munger says, and I disegard, anyone whose writing shows a hint of incentive caused bias. You for example, as trying to make a name for yourself by taking on Krugman. I read Krugman and you only because you are from St. Louis where your ideas can be extremely negative to my family's well being.

Apply this rule, I read no one who obvious pitch is political. Take Lucas. Not only has he not admitted his fundamental errors but he runs with anti-gov't nut jobs, even though I believe your own work viz Canada shows that gov't is not the problem.

Last, pershaps I was not clear, so let me explain a bit further about location economics. Put simply, people are like moths drawn to the flame. They travel to where the economic action is taking place. The classic study of such movement is of Sun Records in Memphis in the mid-1950's. Every music artist of every stripe in the Mid-South moved to Memphis to go to Sun Records, not just Elvis. From Missouri there was Porter, From LA, Jerry, from Tenn., Dolly. There are many sides to this action, of which Martin Jacomb, for example, has written in great detail about the North and South of Europe in the FT for the last year.

All macro models are flawed because they do not take into account this dynamic. Stated simply, you cannot determine our long National long term GDP, for example, without calculating whether economic activity is going to take place here or in China. At present the incentives are all toward moving to China (larger market, etc.).

These forces are huge. My estimate is that China is such a powerful influence now that movement to China is cutting GDP by 200% a year, from 3% to 1%. This is based on observation (the number of people in line at the Post Office each day buying money orders and putting them in envelopes to Hong Kong), but observation is the first step in discovery.

I never see you making any observation of facts, at hand.

You will let Lucas speculate that Gov't is the problem but you pay no attention what is proveable and that is that firms and people and knowledge and technology and knowledge are moving to China (and India).

Keen treats this in much greater depth, and since you get paid to read this papers, my suggestion is that you should read him, INET thinks he merits consideration, before you tell me to read more macro.

If you don't have at least a cursory familiarity with Neil Wallace then you are not worth taking seriously when it comes to macroeconomics. He was one of the "four horsemen" of Minnesota along with Prescott, Sargent and Sims. So he's in company with three nobel prize winners, and you can make a very solid case that he should have won along with Sargent/Sims. If you haven't heard of "Some Unpleasant Monetarist Arithmetic" then... yeah. Here's a recent article in the Minnesota Post that discusses him and the other important Minnesota economics figures:

Well. Having found your blog through Krugman's recent post, and made a somewhat random sample reading of your posts, but with a more than passing exposure to the dismal science, I simply have this to ask/add:

Do you intend to add anything constructive to the general dialog of economics and policy?

If so, your tone of petty snarkiness does not serve that objective. Nor does the dedication of so much ink towards issues rooted in childhood abandonment rather than economics.

No, I am not angry at all. I do think that Krugman makes constructive contributions to the public dialog, in clear prose, and frequently with actual examples & data. I don't always agree with him, but I respect his point of view.

Interesting that you called me an angry "Krugmaniac", with no evidence of that, other than I found your blog through his (and I suppose, that my feedback on your posts was not positive). Kind of makes my point - thank you!

An alternative, constructive response might have been to point me and your other readers to posts you consider to be illustrative of your contributions. Just a thought.

I read and was very disappointed in this paper, this evening. Yet another example of knowing absolutely everything about absolutely nothing.

http://www.artsci.wustl.edu/~swilliam/papers/WW-I-MAR-17.pdf

Of course, I went right to the heart---what does Williamson say about private debt? or debt of financial institutions? Nothing? The models predict nothing, for they assume equilibirum when in fact there is never such.

My first blog comment was on Quiggin’s blog about his strong criticisms of a Australian state government electricity industry privatisation.

I argued that Quiggin’s criticisms were in fact powerful arguments against government ownership.

Quiggin did not appreciate the irony. The post was as follows:

“You make an excellent case, but it is against state ownership.

The owner of the assets in question, as you show, seems to be incapable of basic business decisions, such as buying or selling an asset at a profit using net present value cash flow analysis as their guide.

This inability to sell an asset for a profit calls into question the ability of governments as owners of business enterprises to make more complicated business management and entrepreneurial judgements that must be undertaken by the owners.

I have put to one side any public choice considerations as to whether the information and knowledge required to be a success as a business owner are at the Queensland Government’s disposal, but does not have the political incentive to use it.

Private asset owners have a good incentive to sell assets at a profit as it will hurt their share price and, and if not traded company, their personal wealth.

Inferior entrepreneurs are punished by losses. The assets they sell at the bargain will end up in the hands of more alert entrepreneurs.

There are no similar feedback measures disciplining public asset owners in the capital management and day-to-day monitoring of their asset portfolios. Governments who own business assets have an inherent soft budget constraint.”

So tell us, what has modern macro actually contributed? Are the folks who have actually predicated the financial crisis working with the very methods you seem to cherish so much?People who claim that economics is a science and then claims that "DSGE has no implications, and therefore can't be wrong" deserve to be treated like the clowns they are.Until you come up with something empirically useful, with something actually related to the real world you will be attacked ruthlessly by any economist who hasn't sold his soul yet to the devil.